European Union Reveals $826 Billion Economic Stimulus Plan To Battle Coronavirus Damage

TOPLINE

The European Union on Wednesday unveiled a €750 billion ($826 billion) coronavirus recovery program as the region attempts to claw its way back from its worst economic crisis in decades; if negotiations between all 27 member economies are successful, the plan could represent a major step toward unifying the bloc’s financial systems. 

KEY FACTS

Under the new plan, the EU will borrow €750 billion by issuing long-term government bonds on international markets. 

It will then distribute that money via €500 billion in grants to every member state and €250 billion available for loans (member countries must apply individually to be eligible for the loans, which will carry conditions and restrictions). 

The plan requires approval from all of the EU’s 27 member economies, as well as the European Parliament. 

The grants are likely to be a sticking point in negotiations for the EU’s wealthier nations like the Netherlands and Sweden, the New York Times reports. 

Germany and France, however, are in favor of the grants—those two nations issued a proposal for a similarly structured relief package last week. 

It was a historic step for Germany, which has historically opposed the idea of jointly issued debt between EU economies.

Big number

Christine Lagarde, president of the European Central Bank, said Wednesday that the euro zone economy could shrink up to 12% in the worst-case scenario. The decline will be at least 8%, Lagarde said, though she cautioned that “the mild scenario is out of date.”

Tangent

Japan also unveiled a major stimulus plan on Wednesday worth $1.1 trillion. Like the EU, Japan will issue bonds to cover the costs.  

What to watch for

The EU’s member states will meet on June 18, 2020, to begin hashing out the details of the recovery plan. One senior Dutch official told CNBC that negotiations aren’t likely to be easy: “The positions are far apart and this is a unanimity file, so negotiations will take time. It’s difficult to imagine this proposal will be the end-state of those negotiations.”

Further reading

As The Coronavirus Crisis Continues, These Are Europe’s Largest Public Companies (Forbes)

Bank Of England Warns Of Worst Economic Slump Since 1706 (Forbes)